The Money Issue - Banking Outlook
Florida's going to lose at least another 70 banks
Alex Sanchez, CEO of the Florida Bankers Association, points to a July column in the Wall Street Journal titled “Who Wants to Start a Bank? No One.” Adds Sanchez, “because of the regulatory burden.” Indeed, applications to form new banks in Florida have totaled just three over the past 3½ years, less than the total for any single year since 1992. Banking attorney Bowman Brown, of Shutts & Bowen in Miami, says the FDIC feels the nation has enough financial institutions and so won’t insure deposits of startup banks, effectively keeping new applicants from getting charters.
Florida needs a mix of large and small banks, says Sanchez. FDIC research shows banks with less than $1 billion in assets account for 37% of small loans to businesses and farms.
Regulators say they’re sensitive to community bank issues and are studying the situation. “The enemy isn’t compliance,” Greenwalt says. “The enemy is the cost of compliance. The cost of anything is a function of how you do it. The technology exists to fundamentally change the cost to operate anything. The folks with a plan are starting to buy up the folks without a plan.”
Capital has come into Florida from private equity firms, out-of-state banks and Spanish banks. Bond Street is a case in point. Its capital came from private equity and institutional investors from a broad national and international base and its top leadership has New York roots. But it’s highlighting its Florida orientation as Florida Community Bank.
“We believe there is an opportunity for a Florida-based, Florida-focused institution,” says Ellert, who has spent 19 years in Florida banking with First Union/Wachovia and Fifth Third. Based in Weston in Broward County, he oversees 41 branches and stresses local decision-making in individual Florida markets. Florida Community, with $3.5 billion in assets, is in Orlando and south Florida and wants to be in Tampa and Jacksonville. “We are extremely sound,” he says.
Bond Street has filed to go public but hasn’t specified a time frame for doing so. Through the first half of 2012, it lost $8.6 million, a wider loss than the $4.3 million loss in the first half of 2011. Paul D. Burner, CFO and executive vice president, says that with the majority of infrastructure investment behind it, the company is “positioned for and driving to profitability.”
Given the competition for the shrinking number of FDIC-seized banks, some acquirers have changed tack to focus on organic growth, while others seek to acquire banks not in FDIC receivership [“Well-Heeled”].
Consolidation outside the FDIC process begets its own hurdles. There’s a gulf between how acquirers value a bank and what directors at that bank can stomach in losses on their investment. Some banks simply are too small to interest acquirers because acquiring and integrating a small bank tends to be as labor intensive as buying a large one — without the same payoff. Also, says Bishop, regulators are hampering the ability of middling capitalized banks to merge into viable institutions.
In rankings kept secret, regulators rate banks on a scale of one to five — five being death’s door — on their capital adequacy, asset quality, management quality, earnings, liquidity and sensitivity to market risk (CAMELS). If a deal doesn’t result in a pro forma bank meeting all requirements for a CAMELS 2 rating or better, regulators won’t let it go through, he says. “Half the banks in the state are CAMELS 3 or higher, maybe more,” Bishop says, which means those banks can’t merge with each other to create a sustainable bank. Bishop says regulators should stick to the capital standard for CAMELS for allowing mergers but not let midlevel grades on the rest of the CAMELS test thwart combinations. “How in the world can these little banks make any money and survive? They’ve got to get bigger. If they can raise enough capital to meet the regulatory requirements, let them merge,” he says.
Meanwhile, Florida Community and its parent Bond Street still have $270 million to deploy buying banks. Says Ellert, “We’re very much in the marketplace looking.”